Plastic bags vs jobs -- there is really no dilemma for China

Submitted by David Dollar
On Wed, 04/02/2008

Andrew Leonard posts in his blog[1] an interesting report from journalist Tony Cheng of Al-Jazeera:

China has banned, for environmental reasons, the free hand-out of plastic bags. As a result, the country’s largest plastic bag factory has closed, throwing 20,000 workers out on the street. Some see this as posing a dilemma between environment and economy, but I don’t agree that good environmental policies are bad for the economy, just the opposite. What this case illustrates instead is the dilemma between doing something good for the whole people, but at the expense of adjustment costs borne by a small group – the 20,000 workers and the factory owner.

Good environmental policies create jobs directly and indirectly. China is quickly emerging as the largest producer of photo-voltaic cells and of wind power equipment (both supported by World Bank projects, see here[2] and here[3]). The clean-up of lakes and rivers and the expansion of sewerage and waste water treatment facilities (also a big area of ours[4]) create huge numbers of jobs in construction and maintenance. The health benefits of the clean-up reduce illness and prolong life expectancy, both of which are good for long-run economic development.

Finally, we have found in our investment climate surveys[5] a clear tendency for cities with better natural environment to attract more investment and create more jobs. The highest productivity in the world is in countries such as Denmark, the United Kingdom, and the United States, all of which have good natural environments.

So, it is a big myth that good environmental policies are bad for the economy – in fact, those policies stimulate new lines of business at the same time that they force older lines to adjust or cease. The problem is that there are real adjustment costs in the short run, for very specific people. The 20,000 laid-off workers can find new jobs in China’s dynamic economy, but they may have to move, finance new training, suffer a spell of unemployment, and perhaps take jobs in the end at lower salaries.

The sensible response to this is not to preserve unproductive jobs just to avoid these costs. The sensible approach is to put in place good social protection and adjustment assistance, which China is gradually doing.